Refinancing an auto loan can be a great way to get out from under a high-interest car loan. However, there are also risks involved with refinancing. It’s important to have a firm understanding of these risks before you act. Here are some things you should know about refinancing auto loans:
Lower interest rate
Interest rates are at historic lows, so you may be able to lower the interest rate on your current auto loan. This can save you money in the long run because it means that you’ll pay less for the life of your loan — and more importantly, it will help you avoid paying unnecessary interest fees every single month until the end of your loan term.
You might also be able to lower your monthly payment by refinancing into a longer-term loan with a lower APR (annual percentage rate) and by choosing the best car refinance companies. This will allow you to make fewer payments each year and reduce how much money goes toward financing costs each month. Lantern by SoFi experts says, “Ensure your credit score can handle a hard credit check.”
Lower monthly payment
A lower monthly payment can help you to pay off debt faster or have more cash in your pocket. For example, let’s say that after refinancing, your current loan has a higher interest rate and you can afford an extra $150 per month on your car payment. Your new monthly payment would be $350 instead of $450. That means in one year; you’ll save $1,200 in interest payments!
The best way to determine if refinancing will work for you is by keeping track of the total amount due each month until the loan is paid off. If that number fits within your budget, then refinancing makes sense as a way to save money over time—and still get behind the wheel of an excellent ride!
Change your loan term
If you’re in the market for a new car, you can take advantage of refinancing your auto loan. Depending on your situation and what type of financing you have, refinancing could give you more flexibility with how often and how much you pay each month.
Additionally, if your credit score has improved since applying for your car loan, then it may make sense to refinance into a lower interest rate. This will not only allow you to make payments more affordable but also increase the length of time until repayment is complete—making it easier for borrowers who have had trouble making their monthly payments in the past.
Change your loan type
You can also change your auto loan type at any time. If you want to opt for a shorter-term loan, then you can refinance with a lower interest rate and better terms.
However, if you choose to do this and the length of your loan becomes too short, it’s possible that your vehicle will not be ready for another refinance in time for its next payment date. However, it would help if you also kept in mind that there is no guarantee that future lenders will offer the same interest rate as your current one.
There are many ways to refinance an auto loan, and the benefits you can get from doing so are well worth it. You could save hundreds of dollars each year on your monthly payment, lower your interest rate, change your loan term or even change the type of auto loan you have!